Why Labour never tackled monopoly before

Some years ago now, I was involved with the team at the New Economics Foundation running the highly influential Clone Town Britain campaign - the one that argued that every high street was beginning to look the same.

As an aside at this point, I might say that - although I still think we were right - I don't think any of us expected that the situation would be changed, not by the disappearance of the little shops, but by the euthanasia of most of the clone retailers.  But that is beside the point, for now.

During the umpteenth Competition Commission review of the retail market, I had come to the conclusion that proper competition was the way forward - competition that would allow a diversity of retail formats to exist, not just a bit more competition between the big four.

But how were we going to put any pressure on the competition commissioners, shadowy people at the best of times.  We decided to hold an academic seminar at an outpost of London University, and invite them.

Lots of people came, including a contingent from the Office of Fair Trading and some of my think-tank colleagues involved in the Clone Town campaign.  We went round the table introducing ourselves and two things became immediately and worryingly clear.

First, nearly all those from the Competition Commission had been seconded from the European Commission, and were not much interested in what I would call competition.  They were interested in building up giant European champions to take on the giant American champions in great transatlantic clashes.

Second, it was clear after the first two people spoke that - almost without exception - the representatives of the Competition Commission hated us with a deep and bitter loathing.

I was staggered that they had even heard of us.  It was a little disturbing, especially for a mild, unpolitical person like myself, unused to being disliked quite so intensely.

"What should we do?" one of my colleagues asked.  I said we should reply, as George Bush used to say about terrorist outrages, at a time and place of our choosing.

But I also came away wondering why competition had been so sidelined in this country.  I came to the conclusion it was largely the fault of the Lib Dems.

Hear me out on this one.  Competition used to be the central economic plank of the Liberals.  After the 1950s, they tended to forget it.  They abandoned 'free trade' as a Liberal maxim and consequently lost control of its meaning to the so-called neo-Liberals (if such people really exist).

The Conservatives have never been very interested in competition.  They think, rather like the Competition Commission, that if a company has an absolute market dominance, then it is because people must want them do.  If they have it, they must deserve it.

Labour has never been interested in competition ether.  In fact, Blair and Brown both seemed to prefer a situation where a handful of mega-companies dominated their own markets, believing they could then control them - which of course they never did.

It was left to Liberals, as it always is, to bang the drum and keep up the pressure for market diversity.  When they fell silent, it was hardly surprising that the diversity got squeezed.

So when Ed Miliband starts talking about competition, that is for me a hopeful sign.  It is so because we urgently need competition back on the agenda, and because it might encourage Liberals everywhere to dust down the central plank of their traditional approach to economics.

What I found surprising about Miliband's intervention on the subject is that he only talked about the banking and energy markets.  I fear this means he is simply chasing headlines because it implies he won't tackle the others.

What about retailing for example?  Where one retailer has over a third of the grocery market - and consequently pays its suppliers in 90 days, rather than the usual 30, funding itself to the tune of an interest free loan equal to two month's stock.  Will he tackle that?

What about pharmaceuticals or seed manufacturers, who are attempting to lock us into a semi-monopoly with their GM food patents?

And most of all, what about the new generation of intermediaries, which push up inflation by taking a slice of every transaction if they possibly can - Amazon, Visa, Google?  Will Miliband dare?  I certainly hope he does, before we are all trussed up in the most illiberal monopoly power since the days of Standard Oil.

How to rescue the middle classes - and why Miliband may not

Here, if you want to cut to the chase, are my conclusions in the Guardian this morning about how to save the middle classes:

"It means ratcheting down the price of property, rescuing pensions and standing up to the financial elite and those who seek total economic efficiency – for whom the relative independence of a middle tier is a glaring inefficiency, just as the working class was before them.

"But the most important factor in the survival of the middle classes is going to be their own entrepreneurial zeal, to create the local businesses, local banks and local institutions we need – their ability to carve themselves a sustainable niche in the economy.

"For that, they will need powerful political support to protect them from aspiring monopolies that would devour them – and it isn't clear whether they will get it..."

Of course, there is more to it than that.  There are global trends and great UK mistakes to contend with, but the main conclusion is this: if Ed Miliband wants to talk about the middle classes, he is going to have to think a good deal more radically than the traditional stuff dragged out by politicians on these occasions - help with home-buying, help with childcare, better schools.

You can't just carry on helping people knock the edges off the economy, because - in the end - it is the structures that are against you, as they are now.  The way we have designed the global economy is actively corroding middle class life and middle class values.

And if you want to know more, do consult my new book Broke: How to Survive the Middle Class Crisis.

Why Miliband's banking cap doesn't fit

You wait years before you get an intelligent intervention about the middle classes, and then suddenly three of them come along at once.

Ed Miliband has now finally made his speech, which you can read in full here.  Nick Clegg launched a report for the think-tank 4Children describing how this generation is the first for half a century or so to expect their children to be worse off than they are.

There is an element of bathos about putting it like this, but I can't help mentioning that there was a third intervention.  Yes, you  guessed it, the updated, 'affordable' edition of Broke: How to Survive the Middle Class Crisis is now published and on the shelves.

This made it a strange week for me.  For the past year, I have been working almost entirely on the two issues of the middle classes and how to get a more responsive banking system.  Suddenly, and thanks to Miliband, both issues hit the headlines at exactly the same time.

I have now finally read Miliband's speech.  Let's get this clear: I applaud him for tackling the issue and for his courage in recognising that the trends corroding the middle classes began before the current coalition took power.  But really - he is going to have to do better than this if he is really going to shift the debate.

Let's just look at his proposal on banks.

I am absolutely in favour of market caps, not just in banking but in retailing and energy and many other sectors as well.  The Office of Fair Trading says that market distortions creep in over a market share of 8 per cent, and - although you might not go that far - I see no reason why any company should build up more than 15 per cent in any market.

That would be a Liberal approach.  It would mean more competition, better customer service, lower prices.
But in banking, that is not a solution to the basic problem - which is that the big banks are no longer geared up to lend money to local business.  They have no infrastructure to price risk for local business.  Without local banks, we have no direct link between local deposits and local enterprise - as they have in most of our trading partners.

The coalition has carved two more big banks out of Lloyds and RBS.  Miliband wants to carve two more.  That will mean more competition at national level - but will do very little to provide what we really need: local banks, committed to local business, and with the infrastructure and local intelligence to support them.

Miliband seems to have proposed a symbolic solution designed to show he is going to be tough on the big banks, but has not succeeded in convincing me that he is serious about a new tier of banking - and I don't see why the UK should be almost the only major trading nation without one.

Three quarters of small businesses in Germany bank with their local sparkassen.  UK small businesses have no equivalent.

I don't give up hope.  Miliband's office is looking at local banking now.  His advisors have talked about community banks.  But what we badly need is proposals.

This gives time for the Lib Dems to make the local banking and local business issue their own.  There is more competition, thanks to the coalition.  The big banks are somewhat more secure too, though the risk of another banking crash via wild derivatives seems little further away.

But on the crucial issue of linking local deposits with local enterprise - that is where we need commitment, and I believe that the Lib Dems will expand on their 2010 manifesto commitment and adopt this approach.  And if you have been wondering - this is what they need to do.

The real source of the middle class crisis

I went to a school reunion recently. We are middle-aged, middle class survivors, in a sense. Some of our fellow public schoolboys from the 1970s have died. One or two have even committed suicide, but we are still around, largely happy, not always thriving, but settled.

What is most unexpected about the small group of us who meet once a year, upstairs in a bar in London’s Covent Garden, is how diverse we are.

There are two builders, a furniture restorer, a very successful barrister, a medical consultant, an alternative health therapist, and a writer (me). There is also a garage owner, a fireman, an undertaker, a sales director, and an engineer, among others.

We spent our whole schooldays being told how privileged we were, and we were certainly privileged in many ways – most of us own our own homes, though not all of us. 

But if you believe the rhetoric about independent schools, on either side of the political divide, you might have expected us to have been more of a predictably cohesive group.

But we have certainly benefited from the age we lived in, from free university education and student grants, and from inheriting the first staggering rises in house prices from our parents. We have trained as professionals in the days when they had some freedom of manoeuvre, before the combination of McKinsey and Goodhart’s Law.

We don’t talk about money much – we are too middle class for that – and our incomes clearly vary enormously (one of us has even retired). But we are not the narrow slice of the class system you might have predicted. 

We seem actually to straddle a huge variety of different kinds of middle classes, but we all worry about our children, and their ability to survive in the world that is emerging, here and abroad.

Those of us who are tolerant of getting into debt, especially property debt, seem to have inherited the world. But even they seem unlikely to pass it on to their children, who will struggle against an emerging middle class almost twice the size of what it is today around the world. 

 It is strange that our secondary education should have taken place with a background of the Three Day Week, the Energy Crisis and the virtual collapse of the UK economy – yet we have been on the winning side for most of our lives. 

At the same time, when the nation is incomparably richer by conventional methods, our children’s lives seem likely to be seriously constrained. But for different reasons.

The middle classes in the struggling northern England have their problems too. The unbalanced economy, which seems to get more unbalanced with every month that passes, has sucked the enterprise out of the north, leaving it with a constrained, shrinking public sector. 

The middle classes can afford to rent or buy, but their professional room for manoeuvre is serious constrained, and the enterprises, the local papers, local banks, local food distributors, local shops, local abattoirs, which gave previous middle class generations an economic underpinning, have gone.

In the south, it is the other way around. There is work, but it struggles to pay enough to buy or rent because the housing market is increasingly geared to the needs of foreign investors and the mega-rich.

And here we get to the nitty-gritty. Because, behind all the headlines and soundbites, it is increasingly difficult even for middle income earners in mainstream work, including ever larger chunks of the middle classes, to get by without support from the government in the form of Help to Buy, or housing benefit or council tax rebates or tax credits or all the rest of the state’s generosity to its middle income earners.

Their children are living at home, their pensions have been corroded by the financial services industry. But political parties need the middle classes and they tend to hide these problems away by subsidising home ownership – even though it pushes up prices for our children.

What is actually happening is that everything we thought of as the mainstream economy is being pushed to the margins, often subsidised by taxpayers. 

 Energy prices rise as the big utilities extract the benefits of monopoly (and the French and Chinese take their nuclear subsidies), because successive governments wasted the earnings from North Sea Oil. Public services become increasingly unaffordable as PFI investors extract the results of successive governments’ determination – at whatever cost – to take investments off their balance sheet. 

Other monopolies make best use of the UK’s bizarrely forgiving corporate tax regime to move whole sectors offshore, as Amazon has done for the book market.

So when Ed Miliband suggests that Labour can save the middle class, he needs to re-think many of the economic assumptions of the past three decades.

Maybe he will. Or maybe he is just using the issue to flag up a kind of ‘all-in-it-together’ rhetoric. Either way, the usual combination of so-called middle class issues – around more childcare, better teaching and help with home ownership – are not nearly enough. 

The traditional Labour solution – Fabian welfare for the middle classes – are not adequate to the problem.

What can we do instead? Well, to find that out, you might just have to read the new improved, updated and affordable edition of my book Broke: How to Survive the Middle Class Crisis, published today...

How to go about rebanking the UK

Never in the field of human politics has one political speech been leaked so often by so few. Or so you might think about Ed Miliband’s economics speech, due for delivery on Friday.

Yesterday, it was about the middle classes – which just happened to coincide with the publication of my new improved, updated and ‘affordable’ book Broke: How to Survive the Middle Class Crisis.

Today, it was competition in the banking sector where they flagged the idea of a market cap, an important idea – if it can get over the horror of that kind of thing in the Treasury.

It is hugely important that Miliband has committed to building the diversity of UK banking, but there are two problems with this:

First, his colleague Ed Balls has been opposed to this agenda practically since the womb, so it would be strange if he had suddenly undergone some kind of Pauline conversion.  The fear is that it will be read as a piece of Labour positioning, part of an internal power struggle, rather than a serious contribution to policy.

Second, there are other ways of achieving the same objective.  A market cap would be vulnerable to legal challenge and it would be fought through the courts by the big banks.  There are European dimensions to the whole thing.

If this was the centrepiece of Labour’s strategy, there would need to be something else in reserve – if we are going to see real diversity in the local banking market in the UK, as other countries have, and to their huge economic benefit.

It so happens that, with the help of the Joseph Rowntree Reform Trust, I was working with Lib Dems in the Lords to develop implementable approaches to creating a new local banking infrastructure in the UK.

It is far-reaching and, what’s more, it can be done – and relatively quickly.  You can read the results here, published today.

The irony is that the Lib Dems were the only party to commit to baking diversity in their 2010 manifesto.  It would be ironic if they were outflanked on their own issue by Miliband.

But I don’t think they will be.  The commitment to diversity by the Lib Dems is far deeper than it is in Labour.  In any case, coalition or no coalition, it will require at least two parties to push through anything remotely like this.

Why this is Middle-Class-Week, and what it means

I have written rather too many books over the years, and they invariably miss the zeitgeist - often by centuries.  So I was flabbergasted this morning to realise that I had, at least on first inspection, hit the zeitgeist bang on.

Not only has Ed Miliband hit the headlines today with an article in the Daily Telegraph this morning about the plight of the middle classes, but Nick Clegg is due to talk later in the week about the way in which - for the first time since the Second World War - middle class parents expect their children to struggle more than they did.

Not only that - but my updated and 'affordable' edition of my book Broke - now subtitled How to Survive the Middle Class Crisis - is published on Thursday.  How about that for a conjunction...

In practice, I find that hitting the zeitgeist bang on is just as stressful as missing it my decades.  You feel you have to rise to the challenge.

I hope to do that in the next few days, and I will certainly have a go at rising to the challenge on this blog.  But there are two reasons why I believe this particular conjunction of events is important.

First, Ed Miliband is brave enough to say that the trends causing the crisis began before the coalition took office.  This allows us to talk about the squeezed middle in some kind of context.  This is, after all, a crisis that has been three decades in the making.

Second, since we are not talking just about the immediate cost of living increases, there is the opportunity to look at exactly why we are hurtling towards a new class division - between a tiny elite and a vast, dependent proletariat.

That provides the opportunity to discuss potential solutions which are bigger than the occasional Fabian-style tweaks in the tax and benefits regime.

I have a feeling that this is a significant moment, the very beginning of major political and economic change.  Watch this space...

Why the economy still needs rebalancing

"It's far too soon to say 'job done'. It's not even half done. That's why 2014 is the year of hard truths."

So said Nick Clegg in an interview on the Andrew Marr show.  He was talking about the economy, and he was absolutely right - the economy may be on its way towards recovery, but it is a long way from there yet.

Yet there is a hard truth which does need to be articulated.  It takes nothing away from the coalition's success in pushing the economy out of the hole in landed in by 2008.  That is, and will remain a Lib Dem success, but there is an absolutely vital element which has only just begun.

I don't know whether this is what the Lib Dem leader meant when he said the job was "not even half done".  But I hope it was, because the part needs to be clear what the objective is.  We need to be reassured that the objective is still the same as it was back in 2010: rebalancing the economy.

I say this because I fear the great objective of rebalancing was allowed to slip down the agenda since then.  The coalition has focused its attentions on the systemic risk to the financial system to banks operating under the safe umbrella of the government guarantee. But too little has been done so far to tackle the other banking problem – the lack of choice or competition in the banking sector, and the resulting sidelining of small businesses compared with other countries.

Yes, there is the seven-day switch regulations, which means more competition in the existing baning sector, but the existing sector is inadequate for the needs of the economy.

This is a Lib Dem issue.  It may even be the Lib Dem issue.  The closest to a proposed solution at the last general election in 2010 was in the Lib Dem manifesto, which promised to: “Break up the banks and get them lending again to protect real businesses”. This was translated in the coalition agreement along these lines:

“We want the banking system to serve business, not the other way round. We will bring forward detailed proposals to foster diversity in financial services, promote mutuals and create a more competitive banking industry. We will develop effective proposals to ensure the flow of credit to viable SMEs.” 

Let's face it; this has not yet been achieved.  Ed Miliband has made noises to suggest that he is moving in this direction, and it would be galling for Lib Dems to be outflanked on an issue that was once their own.

And don't let's pretend any of this is simple.  The UK economy has been pretty unbalanced since the Industrial Revolution, which the City failed to fund.  Keynes had another go via the Macmillan Committee in 1930.  It is the most important unfinished business of the nation.

It also seems to me that only the Lib Dems can achieve it.  But don't let's pretend it will require a little tweaking here and there.  It is a big project and, as Clegg said, "it is not even half done".  If that's what he meant...